LA affordable housing developer saves time and money on project for formerly homeless tenants

By Anna Scott

It’s easy to miss the tiny batch of brand new homes on a residential street in the South LA neighborhood of Vermont Knolls. Wedged onto a narrow lot between two other low-rise apartment complexes, this new bungalow court — eight small homes that share outdoor space — will soon welcome tenants who previously had no shelter at all.

Eight one-bedroom and studio-size units is a drop in the bucket in terms of LA’s homelessness crisis, with at least 41,000 people living on the city’s streets or in shelters, according to the latest count. But this project is special not for its size or design, but because of its relatively cheap cost.

This bungalow court was built for less than half the cost of a typical permanent supportive housing project, and in a fraction of the time. With a total budget of around $1.6 million, the development by the nonprofit Restore Neighborhoods LA breaks down to about $225,000 per unit. Compare that to an average price of more than $500,000 for a new unit of homeless housing in the City of LA.

“I just have always felt that there’s a better way to do things,” says John Perfitt, executive director of RNLA. “I think there’s a lot of room for change, perhaps disruption, from the paradigms we’ve used for financing things and building things.”

The disruption he’s talking about largely centers on two key parts of his business model that drove down costs. First, RNLA used mostly private construction financing. Second, the developer has obtained rental vouchers through the county to subsidize rents at the property for incoming tenants.

By contrast, a typical affordable housing project in LA could get financed through a combination of city money, county money, state money and federal money, along with some form of private money, says Tara Barauskas, executive director of the nonprofit developer Community Corporation of Santa Monica. 

She calls this the “lasagna of financing,” and says that layering all the funding just right involves navigating different deadlines, different applications, and even hiring experts to deal with the bureaucracies. One project, Barauskas says, could have five to 10 funding sources.

With its Vermont Knolls bungalow court, RNLA bypassed much of that complexity by getting a single $920,000 loan from a private community loan fund called Genesis LA, which went towards construction and then will remain in the project long-term. RNLA also received smaller amounts from an LA County innovation grant, and 57 individual investors who chipped in through the online crowdfunding portal Small Change.

“Very unique capital stack,” says Perfitt, the head of RNLA. “Very much streamlined.”

Meanwhile, the rental subsidies mean that future residents will pay a third of their incomes towards rent, and the government will cover the rest for more or less market-rate. Having that rental income secured upfront and attaching the vouchers to the units (versus seeking tenants with their own Section 8 subsidies) allowed everything else to click into place, according to Perfitt.

“Our lender knows that money's going to be there for a long period of time, he says. “That is really what allows us to not only get the money to build things, but also then to operate on an ongoing basis.”

RNLA has partnered with the nonprofit Housing Works to provide social services to tenants once the project opens. 

The bungalow court isn’t RNLA’s only project. The company currently has about 120 units in the pipeline, Perfitt says, making it still a relatively small player in LA’s affordable housing world. But it’s not the only one doing some version of this business model. 

The larger, for-profit real estate fund SoLa Impact, for example, uses private capital to buy existing buildings in and around South LA and develop new ground-up projects. While most of its existing buildings aren’t rent subsidized or specially designated for low-income tenants, the company houses roughly 600 Section 8 tenants, says CEO Martin Muoto.

Still, it’s not clear how widely these formulas can be replicated.

Barauskas of Community Corp. of Santa Monica says her organization is studying business models like those of RNLA and SoLa Impact, but for large permanent supportive housing projects that cost tens of millions of dollars, it’s difficult to make them pencil out without utilizing every available public resource, cumbersome as the process may be.

The “lasagna” system works, he says, because “everyone puts in a little and we're able to produce a lot.”

But even if $225,000 housing units are going to remain the exception rather than the standard, the high cost of building in the city is a problem elected officials are trying to solve. Policymakers with the city and county of LA have offered special “innovation” grants to affordable housing developers who present faster, cheaper construction methods. 

Meanwhile, at least one proposal being considered by the city bucks the traditional affordable housing financing machine altogether. A motion from City Councilmember Mike Bonin asks city staff to research other countries’ social housing models, to see if those policies could be applied in LA. A report back is expected in the next few weeks, according to Bonin’s office.